Challenges of fintech compliance and regulation

Published on 26 Apr 2023

compliance management

Organizations and enterprises must adhere to regulations in order to maintain a risk-free workplace and efficient operations. The necessary compliance measures may differ depending on the sector and the specifics of the enterprise.

Sarbanes-Oxley, passed in 2002, protects investors against false financial reporting by firms and is an example of legislation requiring regulatory compliance.

As a result of catering to specific user requirements and preferences, the financial technology sector has expanded rapidly in recent years. However, Fintech's innovations have occasionally gotten ahead of the sector regarding regulatory compliance. Consequently, there is more danger for companies working in the developing Fintech field.

See also: Post COVID-19: The Rise or Decline of Fintech?

The Role of Compliance with Regulations in Financial Technology

Fintech companies are held to the highest national, international, and professional standards by their adherence to regulatory compliance. Regular audits of live design system implementation are also helpful for spotting emerging issues.

Financial technology companies have the opportunity for fast expansion without the same level of regulation as traditional financial institutions. But as the market expands, so does the need for regulatory checks and balances. Most new FinTech businesses have trouble syncing compliance features because of widespread misunderstandings about the following.

  • Due to the high expense, compliance management is reserved for major organizations.
  • Businesses can handle compliance issues as they arise.
  • If compliance does not result in financial gain, it is unnecessary to devote significant resources.

In a nutshell, the risk level rises because Fintech businesses often fail to comply with applicable regulations. They must follow strict compliance procedures to reduce potential dangers as much as possible.

Possibilities For Fintech Firms

Commercial banks and other financial institutions might gain greatly from reevaluating their service delivery mechanisms in light of financial innovation. Fintech's value is widely recognized, and many industries that have adopted the industry's novel solutions are reaping the benefits. If you own a firm that uses fintech services, you may capitalize on current market conditions to increase your chances of success. The financial technology industry and trends are expanding rapidly across many company environments.

The financial services sector may use many established techniques to create cutting-edge new products and services. They may achieve this in several ways, including via in-depth study, report generation, business data analytics, and seizing other possibilities. Let's talk about a few common methods.

1. Digital Financial Transactions 

The financial industry is not immune to the widespread digitization that has revolutionized so many other industries. Rapidly becoming the norm are massive technical and structural shifts now taking place. Banks that exist solely online have increased productivity and customer satisfaction. No one enjoys the experience of going to the bank in person, waiting in long lines, and completing several forms. Opening an account or transferring funds is possible 24/7/365 with digital-only banks. This is one of the advantages of becoming digital. Some of the many great features of digital-only banks include instantaneous access to account balance summaries, transaction histories, bill payments, and real-time analytics.

2. Big Data and Analytics

Big data and analytics are being widely used to create individualized user experiences. Data and analytics help businesses stay competitive by allowing them to streamline processes, increase profits, anticipate customer needs, provide individualized solutions, and predict product demand. This should warn businesses that where there is big data, there is also analytics. Their friendship is unbreakable. Businesses need to make a concerted effort to make widespread adjustments to stay up with the financial sector's fast shift toward data-driven efficiency.  Insightful business outcomes may be derived from the accumulated consumer data.

3. Blockchain Engineering

Due to its widespread use, blockchain technology is quickly becoming an integral part of the backend systems that enable digital transactions, stock trading, smart contracts, and identity management at banks and other financial institutions. Banks and other financial organizations swiftly use blockchain because of its global reach, speed, and security.

4. Customization

The worlds of banking and customization are complementary. When it comes to banking, companies can always go right with a personalized approach. Personalization in the financial services industry is tailoring a service or product to an individual's unique needs and preferences by analyzing their transactional history and other information. Due to the pandemic, banks and other financial organizations have had to prioritize survival measures above luxuries. Trust may also be built via a personalized connection.

5. Automated Robotic Processes

Is there any banking procedure that combines speed with efficiency? So, you nailed this one. Records show that RPA is among the most effective methods for handling monetary transactions. Robotic process automation (RPA) sometimes implies the process will be automated. Reasonable prices, high-quality user experience, and cognitive wealth-management advice have contributed to RPA's meteoric ascent.

The Fintech Industry's Greatest Obstacles

The financial technology industry is growing rapidly, sometimes called "fintech." It has brought about improvements in monetary transactions for both consumers and companies, as a result of modifications to business applications, services, and goods. Certain regulatory hurdles to overcome in this emerging sector regarding protecting private information.

The financial technology industry is one of the most competitive in the world, yet it struggles with data, information, money, and technology. Credit risk underestimation, noncompliance, cyber fraud, data theft, etc., are all examples.

The following will illustrate the serious problems that Fintech now faces.

1. Security, Privacy, and Vulnerabilities in Technology

Over 80% of the world's nations enforce data security and privacy regulations to guarantee minimal digital weaknesses. However, compliance with data security is difficult due to the many technological vulnerabilities that must be covered.

Phishing and other forms of social engineering prey on human mistakes as another major security hole. A single oversight is all it takes for an attacker to access the whole system. It's also possible that the app's code is malicious. Surprisingly, hackers may occasionally take advantage of poor encryptions in Fintech applications.

2. The High Price of Meeting Regulations

The largest barrier to entry for Fintech businesses is the greater expense of adding regulatory compliance measures. The proliferation of Fintech applications over the last several years has attracted lawmakers' attention, who have passed legislation to control the sector.

Businesses may choose to disregard these new restrictions because of the expenses associated with complying with them. In addition, Fintech has significant challenges because of the price, penalties, and fines associated with noncompliance.

Fintech may benefit from RegTech since it automates and simplifies tasks like tracking, monitoring, and reporting. One of the cornerstones of Fintech, it also improves upon the KYC (Know Your Customer) function.

3. FinTech Apps Don't Synchronize Compliance

Fintech also has to maintain compliance with regulatory changes when new features are added to current applications. When companies upgrade their systems unilaterally without considering regulatory constraints, a substantial barrier is created. Now more than ever, having a compliance staff ready to provide direct help during app updates is essential.

4. Integrity in Fighting Fraud

Throughout the globe, money laundering and fraud are the primary targets of law enforcement. Anti-Money Laundering (AML) rules have been established by governments across the globe, and Fintech companies must naturally follow these laws to stay compliant.

One of the most important parts of protecting monetary and legal transactions is know-your-customer (KYC) policies, which include verifying an individual's identity. In this context, security measures are being taken to prevent identity theft and other forms of fraud.

See also: Tencent invests €5 million in Finnish Fintech Enfuce 


Despite the difficulties that organizations may have while dealing with Fintech, as we have shown throughout this article, the sector also presents several possibilities. However, if you choose the perfect partner for your fintech requirements, you may overcome obstacles and reap benefits. Finding a happy medium between the old practices of banking and the new is difficult. Talk to a fintech development firm about how to reap the rewards.


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